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"Hopes expressed last month of a policy response have now become expectations. Markets are keenly anticipating decisive action from key policy meetings in June"

Fears of a global economic slowdown have come sharply back into focus,
and expectations of decisive action by policy makers have grown,
according to the BofA Merrill Lynch Survey of Fund Managers for June.

A net 11 percent of the global panel believes that the global economy
will deteriorate in the coming 12 months – the weakest reading since
December 2011. Last month, a net 15 percent believed the economy would
strengthen and the negative swing of 26 percentage points is the biggest
since July-August 2011 as the sovereign crisis built. The outlook for
corporate profits has suffered a similarly negative swing. A net 19
percent of the panel believes that corporate profits will fall in the
coming 12 months. Last month, a net 1 percent predicted improving
corporate profits.

Investors have adopted aggressively “risk off” positions. Average cash
balances are at their highest level since the depth of the credit crisis
in January 2009 at 5.3 percent of portfolios, up from 4.7 percent in
May. The Risk & Liquidity Composite Indicator fell to 30 points, versus
an average of 40. Asset allocators have moved to a net underweight
position in global equities and increased bond allocations.

Support for policy stimulus has grown. The majority of the panel now
believes that global monetary policy is “too restrictive.” A net 6
percent take that view, the highest since December 2008. A net 15
percent said policy was “too stimulative” in May. The proportion of
global investors saying global fiscal policy is “too restrictive” has
continued to rise to a net 28 percent from a net 23 percent in May.

“Investors have taken extreme ‘risk off’ positions and equities are
oversold, but we have yet to see full capitulation. Low allocations in
Europe are in line with perceptions of growing risk levels in the
eurozone,” said Gary Baker, head of European Equities strategy at BofA
Merrill Lynch Global Research. “Hopes expressed last month of a policy
response have now become expectations. Markets are keenly anticipating
decisive action from key policy meetings in June,” said Michael
Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global
Research.

Global equity under-valuations match all-time low

Global equities are at their most undervalued since August 2011. A net
48 percent of the global panel believes global equities are undervalued,
matching the lowest level since the survey began. The reading is up from
a net 35 percent in May and a net 22 percent in April. At the same time,
a net 83 percent of the panel says that bonds are overvalued – also an
all-time high and up from a net 74 percent a month ago.

The view is even more concentrated in Europe. A net 45 percent of the
global panel sees Europe as the most undervalued region - an all-time
high reading and up from 27 percent in May.

Asset allocators moved out of global equities with a net 4 percent
underweight the asset class, compared with a net 16 percent overweight
equities last month. They reduced their underweight position in bonds to
a net 23 percent, down from a net 33 percent in May. Global investors
have reached their closest position to being equal weight equities and
bonds since November 2011.

Fears resurge of Chinese hard landing

Last month’s growing optimism about China’s economy has halted in June’s
survey. The panel is equally split about whether China’s economy will
get stronger or weaker in the year ahead; last month, a net 10 percent
predicted it would strengthen. Significantly, 16 percent of respondents
now believe China’s economy faces a “hard landing” – up from 9 percent
in May.

Broadly, sentiment towards emerging markets has softened. A net 17
percent of global asset allocators are overweight Global Emerging Market
equities – down from a net 34 percent in May. Commodities have also lost
favor. A net 8 percent of the panel is underweight the asset class, the
lowest reading since February 2009.

Allocation by global asset allocators to U.S. equities improved with a
net 31 percent overweight U.S. stocks, up five percentage points
month-on-month. In contrast, domestic investors have turned bearish. A
net 36 percent of U.S. respondents to the Regional Survey expect the
U.S. economy to deteriorate in the coming 12 months.

Back to the old counter-cyclical routine

In line with the “risk off” mood, investors reached for their
counter-cyclical auto-function key again this month. Allocations to
Pharmaceuticals, Utilities, Telecoms and Staples all rose from May’s
levels. The biggest reductions in sector positions came in Materials,
Energy and Industrials. Technology remains the most favored sector.

Survey of Fund Managers

An overall total of 260 panelists with US$689 billion of assets under
management participated in the survey from 31 May to 7 June. A total of
188 managers, managing US$522 billion, participated in the global
survey. A total of 141 managers, managing US$297 billion, participated
in the regional surveys. The survey was conducted by BofA Merrill Lynch
Research with the help of market research company TNS. Through its
international network in more than 50 countries, TNS provides market
information services in over 80 countries to national and multi-national
organizations. It is ranked as the fourth-largest market information
group in the world.

BofA Merrill Lynch Global Research

The BofA Merrill Lynch Global Research franchise covers more than 3,300
stocks and 880 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named Top Global Research
Firm of 2011 by Institutional Investor magazine; No.1 in the 2012
Institutional Investor All-Asia survey for the second consecutive year;
and No. 2 in the 2012 Institutional Investor All-China, All-Europe and
All-Japan surveys. The group was also named No. 2 in the inaugural 2012
Institutional Investor Emerging Markets Equity and Fixed Income survey,
covering Emerging Europe, Middle East and Africa; No. 2 in the 2011
All-Latin America and All-America Equity team surveys; and No. 3 in the
2011 Institutional Investor All-America Fixed Income and All-Brazil
Research team surveys.

Additionally, BofA Merrill Lynch Global Research was named the No. 1
Global Broker by Financial Times/StarMine, as well as ranking No. 1 in
the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in
Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street
2012 Analysts Surveys. The group was also the winner of the Emerging
Markets magazine’s EM Research Global Award for 2010 and 2011.

Bank of America

Bank of America is one of the world's largest financial institutions,
serving individual consumers, small- and middle-market businesses and
large corporations with a full range of banking, investing, asset
management and other financial and risk management products and
services. The company provides unmatched convenience in the United
States, serving approximately 57 million consumer and small business
relationships with approximately 5,700 retail banking offices and
approximately 17,250 ATMs and award-winning online banking with 30
million active users. Bank of America is among the world's leading
wealth management companies and is a global leader in corporate and
investment banking and trading across a broad range of asset classes,
serving corporations, governments, institutions and individuals around
the world. Bank of America offers industry-leading support to
approximately 4 million small business owners through a suite of
innovative, easy-to-use online products and services. The company serves
clients through operations in more than 40 countries. Bank of America
Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial
Average and is listed on the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global
banking and global markets businesses of Bank of America Corporation.
Lending, derivatives, and other commercial banking activities are
performed globally by banking affiliates of Bank of America Corporation,
including Bank of America, N.A., member FDIC. Securities, strategic
advisory, and other investment banking activities are performed globally
by investment banking affiliates of Bank of America Corporation
(“Investment Banking Affiliates”), including, in the United States,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a
registered broker-dealer and a member of FINRA and SIPC, and, in other
jurisdictions, locally registered entities. Investment products offered
by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value
* Are Not Bank Guaranteed.